Selling ends the position. Borrowing changes it.
When someone needs liquidity from an asset, selling is the obvious answer. It is also final: the holder gives up future exposure to the asset’s price.
Crypto-backed loans offer a different choice. The asset remains in the position while stablecoins become available to use elsewhere. This can preserve market exposure and avoid forcing a sale at the wrong moment.
But the asset is no longer simply being held. It is supporting a loan.
That distinction is the entire product. A crypto-backed loan does not remove risk. It changes the type of risk the user is taking.
How a crypto-backed loan works
The user deposits eligible crypto as collateral into a supported lending venue. Borrowing capacity depends on the collateral, its market value and the venue’s parameters. The user can then draw a supported asset against that capacity.
A health factor shows how close the position is to its liquidation threshold. The exact calculation varies by venue, but the principle is consistent: as collateral value falls or debt grows, the buffer becomes smaller.
Unlike traditional unsecured consumer credit that asks whether the borrower is likely to repay. Crypto-backed lending relies primarily on the value of the collateral supporting the position. That can remove the need for traditional credit underwriting, but it also means the collateral must remain sufficient at all times.
Liquidity is not free
Borrowing without selling sounds like the best of both worlds. It is not free liquidity.
The user keeps exposure to the collateral, including its upside and downside. If its value falls far enough, part or all of the collateral may be liquidated according to the venue’s rules. Borrowing rates can also change over time.
This means a user must understand more than the amount available to borrow. They need to see the health factor, liquidation threshold, interest rate and how much room remains if the market moves against them.
A product that makes borrowing easy but hides those variables has simplified the interface by removing the information that matters most.
What Compass does
Compass gives fintechs, wallets and applications one integration for crypto-backed Loans across supported protocols and chains. Compass prepares supported transactions and returns them for approval through the application’s configured signing setup. Compass does not hold keys or custody funds.
Product Accounts are used for documented Crypto-Backed Loan flows. The underlying lending venue still determines collateral parameters, rates and liquidation mechanics.
The application remains responsible for the customer experience, product eligibility, disclosures and the operating model around the integration. Compass reduces the onchain integration work underneath it.
A better lending product tells the whole story
The value proposition is easy to understand: access liquidity without selling the asset.
The responsibility is just as clear: show the user what supports the loan, what the debt costs, how the position changes and what happens if the collateral falls.
Opportunity and risk should not live in separate footnotes. They belong in the same product experience.
That is how crypto-backed loans become useful infrastructure rather than hidden leverage.
Ready to build?
Give your users a way to access liquidity without leaving your product or forcing a sale.
Start at docs.compasslabs.ai, or talk to us at compasslabs.ai.